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Centre may ask states to lower tax on aviation fuel

The Centre is likely to ask states to lower tax on aviation fuel as a measure to discourage cash-strapped airlines from going in for cheaper imports.

, ET Bureau|
Updated: Jun 27, 2012, 02.14 AM IST
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NEW DELHI: The Centre is likely to ask states to lower tax on aviation fuel as a measure to discourage cash-strapped airlines from going in for cheaper imports.

The Directorate General of Foreign Trade has given approval to Kingfisher, SpiceJet, IndiGo and GoAir to import fuel worth $1.3 billion, a move that can help carriers lower their fuel bill. The airlines, however, are yet to begin imports. "We expect all major airlines to apply for direct imports in the coming months," an official told ET.

"Since state governments would anyway not get taxes on such imports, they may as well bring down tax levels so that airlines are not forced to go in for imports," the official added.

The commerce department, which plans to soon take up the issue with the finance ministry, is also worried that direct import of aviation fuel will lead to congestion at the ports.

"Since it is the finance ministry that talks to state governments on financial issues, the commerce department will ask the revenue department to raise this issue in its interaction with states," the official said.

Costly fuel is one of the issues hurting the country's airline industry. State taxes on ATF available through government agencies vary between 4% and 30%, making the fuel 30% to 50% costlier than the global average. In Tamil Nadu, Karnataka, Bihar, Madhya Pradesh, Gujarat, West Bengal, Maharashtra and Himachal Pradesh the cess is 25% or higher.

Civil aviation minister Ajit Singh, too, had stressed that taxes should be lowered in order to help carriers keep a check on fares. The minister said lower tax on ATF would help increase air connectivity to small towns.

In February, the Centre gave a nod to direct import of ATF on a case-to-case basis, a long-standing demand of domestic carriers whose operating costs have been rising due to costly fuel.

Cash-strapped Kingfisher was the first to seek permission to import jet fuel directly and not buy it from public sector canalising agency IOC. Air India, too, plans to apply for direct fuel imports, which is likely to result in savings of about 300 crore on taxes every year for the national carrier.

Once airlines being importing ATF, traffic at the country's congested ports is likely to increase, making matters worse for exporters and importers.

"Port congestion is a big worry for us and we want to take all possible measures to ensure that things stay under control," the official added.

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